Signed into law on May 11, 2016 by President Obama, the Defend Trade Secrets Act (DTSA) has been called the “most significant expansion” of federal intellectual property law in 70 years, and has set off a firestorm of articles on the topic. The DTSA ostensibly was created to establish a uniform national law regarding the protection of trade secrets, and to homogenize the complexities created by the wide variety of existing state trade secret laws.
However, despite this intended purpose, the DTSA leaves all state trade secret laws in place and simply layers the newly-created federal law on top of them. Therefore, rather that pulling together the various state laws under a federal umbrella statute, the DTSA simply adds more legal requirements, potential litigation, and growing cost to the existing confusion already caused by the inconsistencies in state laws.
Here are the primary points in the DTSA:
- Allows civil lawsuits in federal court – with a 3 year statute of limitations – for the misappropriation of trade secrets intended for use in interstate or foreign commerce (this could include a lawsuit by a former-employer/company against a subsequent-employer/company, based on an ex-employee’s disclosure of trade secret information);
- Provides that a court may order the “seizure of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action” without notice to or answer by the property holder;
- Grants power to courts to issue an injunction to prevent “any actual or threatened misappropriation” of the trade secret, or require affirmative actions to protect the trade secret;
- Creates an exception to such injunction, if it would “prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows”;
- Establishes “whistleblower” immunity for any individual who discloses a trade secret “in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney” to report or investigate a suspected violation of law;
- Includes an anti-retaliation provision for any employee who discloses a trade secret to his or her attorney while reporting a “suspected violation of law,” as long as the information is not further disclosed except under court order.
What should employers do now:
Under the provision of the DTSA, employers must provide notice of the immunity set forth in the Act in any contract or agreement with an employee – specifically including contractors and consultants – that governs the use of a trade secret or other confidential information. Without such notice, an employer cannot obtain exemplary damages or attorney fees otherwise available in a legal action under the DTSA. The Act allows such notice to be made by reference to an existing policy document. The notice requirement applies to agreements entered into after the effective date of the Act.
While the DTSA may provide some consistency among federal district courts on these actions, the “layering” of the Act with state laws is bound to create confusion. For example, a plaintiff initially might bring both state and federal claims, adding to litigation cost and disruption, rather than choosing one or the other.
Employer should follow developments of cases under the DTSA – there is bound to be an increase in those numbers in the coming year – and should take affirmative steps to comply with the law’s notice provisions to stay ahead of those developments.